Ponzi Methodology: How to Identify Ponzi Scheme Projects in the Cryptocurrency Market?

Original author: 0xTodd

Original source: 0xTodd's Ponzi Theory

From the first time playing Fomo3D in 2018 until last week, I may have played over a hundred Ponzi schemes, and I have gained some insights to share with everyone, which can also be considered a different kind of year-end summary ------ here it is for you.

What is the difference between Ponzi schemes and real projects?

1. Ponzi schemes and real projects are sometimes just numerical differences.

For example, MakerDAO and Spell have similar mechanisms, both collateralizing a certain coin to generate stablecoins. However, the former's main collateral is ETH and WBTC, while the latter's is UST and WMEMO (a type of OHM Fork).

Another example is that some L1s can offer around 5% staking rewards, provided you complete the network's accounting tasks; while some DeFi projects offer 50,000% staking opportunities, with your task being to ensure you don't sell.

2. Ponzi schemes and real projects may have similar numbers, but their mechanisms are completely different, and the key is who is footing the bill.

For example, in the lending protocols of AAVE or Venus, the USDT-based APR can sometimes reach over 10%, with the interest coming from people willing to borrow at that rate, and having sufficient collateral.

In contrast, the largest lending platform on Terra, Anchor, (almost) offers a fixed rate of 20%, but only serves $UST. However, when you look at the whole situation, you have no idea who is providing that 20%. At this point, you need to be very cautious.

3. Ponzi schemes and real projects can sometimes transition.

For example, Sushi, until the first chef stepped down, had non-Sushi LP pools reaching over 2,000%, which was almost Ponzi-like. Since the second chef 0xMaki took over, Sushi has gradually gotten back on track and become an important competitor to Uni.

4. Is this transformation common?

Not common. Most scammers will just move on to the next scam.

For example, 0xSifu's first job was credit card fraud, his second job was establishing a Canadian CEX, assisting the CEO in taking the private keys and all user assets to their demise, and his third job can only be an OHM clone.

------ Once someone has made quick money, it's hard for them to settle down and earn slow money.

Unless someone else takes over, like Sushiswap, or like Doge. The Doge development team didn't intend to do well; developing Doge was even just to mock Bitcoin, but after Elon Musk got involved, everything changed.

What is the difference between Ponzi schemes and communities?

5. Normal projects can incorporate some Ponzi elements.

For instance, they can use some aggressive methods to complete the token distribution phase. For example, Yearn and Curve utilize some Ponzi-like models, resulting in exaggerated APRs during mining, but their strong cash flow later proves they are not Ponzi schemes.

6. People in Ponzi schemes and community-driven projects are all very enthusiastic, but you need to pay attention to who is making money.

For example, with $People, everyone's cost is 1 ETH = 1 million People, and it's hard to tell who got insider information or free chips; this feels like a community.

Another example is a marketplace that claims to "disrupt Opensea," where everyone is frantically trading to earn tokens, seemingly a fair sale with promising prospects. However, the ETH transaction fees are real money that flows into the hands of those institutions and teams with very low costs.

Can you make money investing in Ponzi schemes?

7. Which earns more, investing in non-Ponzi or Ponzi?

Good projects may drop more or rise slower than Ponzi schemes in certain intervals, but in the long run, Ponzi schemes will definitely underperform good projects because Ponzi schemes only have one outcome: going to zero. So don't FOMO, and don't attack those who don't invest in Ponzi schemes, nor tell them NGMI.

8. You only invest in non-Ponzi schemes, yet I still earn more from investing in Ponzi, so you're a fool.

Just because a project rises doesn't mean it is no longer a Ponzi; rising only indicates that funds are flowing in. At the same time, non-Ponzi ≠ good project. Most traditional entrepreneurial projects fail, but good projects can yield hundreds or thousands of times. If I earn less than you, it only means my ability to pick non-Ponzi projects is lacking, my luck is bad, or I haven't been in the game long enough.

9. You can make money in the transition from small Ponzi to large Ponzi. But realizing profits is difficult; if you run at the wrong time, it could be disastrous.

For example, a certain five heroes of Gamefi from back in the day now require 60 years to break even.

Did anyone make money? Yes, but not many.

Did many experience unrealized gains? Yes, many.

Most people transition from unrealized gains to constant losses, then to permanent losses.

Another example is Luna; many people are currently in unrealized gains from the bottom to now. How will it develop later? (Feeling exhausted, constantly being criticized; I don't want to comment on it today.)

10. You can make money in the transition from large Ponzi to a real project, but it requires real judgment.

For example, Filecoin or AR are currently in this process. If the value created by these two networks exceeds the costs they incur, then they have successfully passed the test. If they ultimately lose to Amazon Cloud or even Alibaba Cloud, then sorry, it's a case of winners and losers.

This requires DYOR, truly investing a lot of effort into research.

11. Participating in Ponzi schemes early or late is very important, while meaningful things may not be that significant.

Participating in Ponzi schemes early can directly affect whether you make money, while meaningful things often do not, or their impact is not as exaggerated.

For example, BNB, with an average cost of around $400 over the past year, while Binance has been continuously empowering it, a few months' difference in purchase won't create a particularly huge wealth gap.

In contrast, with OHM, if you buy in at $100, it rises to $500, and your quantity increases 10x, totaling 50x; but if you buy in at $500, it rises to $1,000, your quantity doubles, and the peak unrealized gain is only 4x, now resulting in a loss. The two scenarios may only differ by three weeks. The later you enter, the more you lose, and the risk levels are completely different.

12. Should I participate in Ponzi schemes?

IQ 50 or IQ 200 can; the former often enters early, while the latter knows when to exit. I do not recommend participation for those with IQs between 90 and 130, as this is not cost-effective, with a low win rate; don't become the last one holding the bag.

13. I don't think I'm IQ 50 or IQ 200, but I must get a piece of the Ponzi pie; what should I do?

My friend, most Ponzi schemes are pushed to most people when they are already in the late stages. At this point, shorting with small funds may be an option.

Most importantly, we have already entered a bear market.

14. What risks do I need to take when shorting Ponzi schemes?

• Ponzi schemes can potentially transform into genuinely meaningful projects through real accumulation, and you must be able to detect this in time.

• You will be cursed by Ponzi supporters. Cutting off someone's financial path is like killing their parents; that's the reasoning. However, I believe that you cannot coexist with thieves; always do the right thing.

• You may get liquidated a few times, so please do not go all in with large funds.

• Short when the crowd is cheering; don't wait until it goes to zero to kick someone when they're down; by then, it will be too late, and be careful of a dead cat bounce that could lead to liquidation.

15. Can I expose or point out that a certain project is suspected to be a Ponzi?

I believe you can. In a Ponzi scheme, most people lose money, and you are helping the majority lose less. However, if you are already shorting, it is advisable to disclose this, as it is a conflict of interest. Of course, entering the secondary market, whether long or short, is just an opinion; do not escalate it to personal attacks.

At the same time, you need to have a strong heart; fortunately, I can handle pressure.